Wachovia (WB) falls after missing estimates

Wachovia Corp. (NYSE: WB) is falling after the company announced its third quarter earnings this morning. The bank's profit fell 10%, hurt by $1.3 billion in losses and write downs related to the recent credit crunch. The company's earnings per share came in at 89 cents, well short of Wall Street expectations for $1.03 per share. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on WB.

After hitting a one-year high of $58.80 in February, the stock fell to a 52-week low of $44.83 in August. This morning, WB opened at $46.98. So far today the stock has hit a low of $46.82 and a high of $47.67. As of 11:00, WB is trading at $47.34, down 80 cents (-1.7%). The chart for WB looks bullish but deteriorating slightly, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.

For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $55 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in 3 months as long as WB is below $55 at January expiration. Wachovia would have to rise by more than 33% before we would start to lose money. Learn more about this type of trade here.

WB has not been above $55 since May and has shown some resistance around $52 recently. This trade could be risky if the Fed action in two weeks gives the financial sector a boost, but even if that happens, this position could be protected by the resistance the stock formed when it topped between $52 twice in the past month.

Brent Archer is an options analyst and writer at Investors Observer.

Visit AOL Money & Finance for more earnings coverage